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Panama To Start Canal Enlargement Studies

by Mike Godfrey, Tax-News.com, New York

20 December 2001


Despite the bad and worsening state of the country's finances, and a decision last week to spend a $1.3bn privatisation proceeds fund on reducing the $8.3bn national debt, Panama's President Mireya Moscoso has decided to seek bids on preliminary work to modernize the Panama Canal.

The favored modernization proposal – building a third set of canal locks – will cost an estimated $4 billion. In October, Economy Minister Norberto Delgado said the Inter-American Development Bank would donate $1 million for feasibility studies. The project also requires enlargement of the Canal waterway, which could cost up to $500 million.

Work is scheduled to begin in early 2002, but government officials are worried about the project’s total price tag. The Canal Authority has yet to line up financing for the project, but intends to pay off the new debt with canal toll revenues, which are expected to increase with the additional traffic resulting from enlargement.

However, there is plenty of opposition to the project in Panama, with some economists saying that it would take decades to earn back the cost of renovation.. Many say there has not been adequate consultation, and that viable alternatives have not been investigated. The Authority says that 40% of ships using the Canal already exceed its design limits in terms of size, and that by 2015 the Canal will be completely obsolete if it isn’t modified.

The main environmental problem is that the vast quantities of additional fresh water required to operate the new locks may flood large areas of farmland, displacing up to 10,000 campesinos (country dwellers).

Law 44, on the books since 1999, allows the Authority to enlarge the canal basin from 330,000 hectares to 552,000 hectares to create new reservoirs by building dams, but 100,000 campesinos living in the area have formed organizations to oppose the dams. They say they are not necessarily against the project, but resent the lack of transparency in the Authority's handling of it.

"We are concerned that, after so many years of struggle, the Canal has not brought benefits to Panamanians," said opposition leader Francisco Hernández, and points to some studies that allegedly show the Canal could stay in business another 100 years without being enlarged.


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